Tweeting in the Dark: Corporate Communication and Information Diffusion

Abstract

Is there a link between corporate information dissemination on social media and valuations? Are social media reshaping the diffusion of corporate information? After constructing a novel and comprehensive data-set of over 7 million tweets posted by S&P 1500 firms, I adopt text analysis methods and find that firms with negative earnings surprises have higher announcement returns if they tweet about earnings news. This result is concentrated among firms with higher retail investor ownership and larger social media networks. I also find evidence that firm-initiated tweets increase investors' fundamental information acquisition and the speed of information diffusion to investors. The findings are consistent with firms managing investors expectations and utilizing social media to expedite the diffusion of corporate information, encouraging more efficient market reactions.

Keywords: Information Diffusion, Market Efficiency, Social Media News, Qualitative Information, Language

JEL Classification: G3, G12, G14